Financial illiteracy weakens microfinance effectiveness – Microbiz boss

Nigeria’s microfinance sector is growing, yet a persistent financial literacy gap is hindering its effectiveness, leaving millions still financially excluded despite greater credit access. In this interview with SAMI TUNJI, Mr. Joseph Onyeabor, Managing Director and CEO of Microbiz Microfinance Bank Ltd and Public Relations Officer of the National Association of Microfinance Banks, FCT chapter, discusses the structural deficiencies, policy misalignments, and behavioural obstacles affecting financial inclusion in the country

Microfinance banks were established to reach the financially excluded, yet millions of Nigerians remain without access to banking services. Where are we still falling short as a nation?

Nigeria made a bold and necessary decision in 2005 to formalise microfinance as a tool for economic inclusion. Since then, the sector has grown significantly, with over 900 licensed institutions and strong expansion in assets. In fact, microfinance banks now account for a large share of the number of loans disbursed across the country, especially at the base of the economic pyramid.

However, growth in numbers has not translated into depth of impact. Millions of Nigerians, well over 30 per cent of the adult population, remain financially excluded. This suggests that the challenge is not simply about having more banks, but about how financial services are designed and delivered.

One major gap is that we have focused more on institution-building than access design. Financial inclusion is not just about licences, branches, or balance sheets. It is about last-mile delivery, affordability, trust, and usability.

In many cases, products do not reflect the realities of informal income. People earn daily, irregularly, and in small amounts, yet many financial products are structured around fixed income patterns. There is also weak distribution in rural and low-income communities, and a lingering trust deficit caused by past negative experiences.

Policy implementation is another issue. There have been provisions to support the sector with funding and incentives, but many of these have not been fully executed. As a result, microfinance banks rely heavily on deposits, which are expensive to attract. This drives up lending costs and limits affordability for the very people the system is meant to serve.

There is also a noticeable drift toward urban markets, with some operators competing directly with commercial banks instead of focusing on underserved populations.

Nigeria is not entirely getting it wrong, but we are not yet fully aligned with the original purpose. A stronger focus on access, better policy execution, and a deeper understanding of how people actually live and earn will move us closer to true financial inclusion.

How can you effectively engage rural and informal sector clients who remain wary of formal financial institutions?

Reaching rural and informal sector clients starts with a simple truth: trust comes before transactions. At MicroBiz, we do not approach these communities with a ‘customer acquisition’ mindset. Instead, we embed ourselves within their existing systems. We work closely with cooperatives, trade groups, and local associations that people already trust.

We also recruit staff from within the communities. These individuals understand the language, culture, and daily realities of the people. This makes engagement more natural and removes the barriers that often come with formal banking environments.

Our model is agent-led, not just digital. While technology is important, human interaction remains critical in building confidence. Agents act as familiar faces who guide customers through the process and provide ongoing support.

We also keep things simple. Our products are transparent, easy to understand, and free of hidden charges. Communication is clear and relatable, avoiding the technical language that often creates distance.

On the technology side, we focus on practicality. With a large number of Nigerians still using basic phones, our USSD services are designed to work without internet access. Our mobile platforms are also simplified, offering a one-stop solution for everyday banking needs.

Over time, this approach changes perception. People begin to see the bank not as an outsider, but as a partner that understands and supports their journey.

How can microfinance banks contribute to the economic empowerment of women and youth?

Empowering women and youth is not just a role for microfinance banks, it is the foundation of their existence.

In Nigeria, women dominate large parts of the informal economy, particularly in trade and agriculture. Yet, they often face barriers such as a lack of collateral, limited documentation, and restricted access to formal credit. Youth, on the other hand, face high unemployment and limited opportunities to build sustainable livelihoods.

At MicroBiz, more than 85 per cent of our customers are women and young people. Our approach goes beyond providing loans. We focus on creating pathways to growth.

For women, we support group savings models, provide micro-enterprise loans, offer financial education, and create opportunities for them to serve as agents within their communities. These structures build confidence, discipline, and collective strength.

For youth, we leverage digital onboarding, provide small and flexible credit, and link financing to skills and enterprise development. We also create opportunities for them to participate in the financial ecosystem as agents and service providers.

The real impact of microfinance is in transforming informal activities into structured and scalable opportunities. When women and youth are empowered, the benefits extend beyond individuals to families, communities, and the broader economy.

Financial literacy continues to be a significant hurdle. Are microfinance banks truly addressing it, or merely focusing on extending credit?

There is still a significant gap in financial literacy, and the industry must do more.

In many cases, credit is extended without proper education. Customers are not always guided on repayment cycles, the cost of borrowing, or basic financial planning. This creates challenges that could have been avoided.

At MicroBiz, we have taken a different position: education comes before credit. We believe that informed customers make better decisions, manage their finances more effectively, and are more likely to succeed.

We invest time in explaining how our products work, what is expected, and how customers can plan their repayments. We also encourage savings discipline as a foundation for financial stability.

With a large percentage of Nigerians still lacking basic financial knowledge, education must be seen as a core service, not an optional add-on. It protects both the customer and the institution, and it builds long-term trust.

Loan defaults are a persistent challenge in microfinance. How do you strike a balance between financial inclusion and risk management?

Loan defaults are often viewed as a customer problem, but in reality, they are frequently a reflection of design and process gaps.

At MicroBiz, we believe that there is no bad credit, only weak credit structures. Our approach is built on gradual growth and strong engagement.

We start customers on small loan cycles and increase exposure based on performance. This allows both the customer and the institution to build confidence over time.

We also rely more on behavioural and business data, such as cash flow, savings patterns, and transaction history, rather than focusing only on collateral. This gives a more accurate picture of the customer’s capacity.

Community-based accountability is another key element. When customers are part of groups or associations, there is a natural support system that encourages responsible behaviour.

Most importantly, we maintain continuous communication. We do not wait until a loan goes bad before engaging. By building relationships and staying close to customers, we are able to identify challenges early and respond appropriately.

Inclusion works best when risk is managed gradually and thoughtfully.

How can you assess and price risk without making loans too costly for the people you intend to help?

This is one of the toughest realities in microfinance. The high cost of funds remains a major challenge. Microfinance banks often depend on deposits or short-term borrowing, both of which come at relatively high costs. These costs are passed on to customers, making loans less affordable.

At MicroBiz, we approach this carefully. We segment customers based on their business size, risk level, and product needs, rather than applying a one-size-fits-all pricing model. We also reward good repayment behaviour with better terms over time.

In addition, we use digital tools to reduce operational costs. Lower cost of service delivery ultimately translates to more affordable lending.

However, the broader solution lies beyond individual institutions. There is a need for more affordable funding structures, including support from the government and development finance institutions. Reducing the cost of funds will have a direct impact on lending rates and overall inclusion.

How can you assess and price risk without making loans too costly for the people you intend to help?

The regulatory environment is both supportive and demanding. The Central Bank of Nigeria has played a key role in strengthening stability, improving consumer protection, and building trust in the financial system. These are essential for long-term growth.

At the same time, compliance requirements can be costly, particularly for smaller institutions. In some cases, rigid frameworks may slow down innovation.

The way forward is not less regulation, but smarter regulation: one that is risk-based and encourages innovation while maintaining strong oversight.

Should Nigeria rethink its microfinance banking model given the rise of fintechs and payment service banks?

Yes, the model needs to evolve. Fintechs and payment banks have introduced speed and convenience, but they largely operate in urban and already banked markets. Microfinance banks remain closer to rural and underserved communities.

The future lies in combining these strengths. Microfinance banks must move from being primarily branch-based lenders to becoming digital and trusted financial ecosystems.

This means embracing technology while maintaining the community-based approach that defines microfinance.

How can regulators maintain a balance between fostering innovation and ensuring consumer protection?

Balance is critical. Too much regulation can slow innovation, while too little can expose customers to risk. The right approach includes creating controlled environments where new ideas can be tested, alongside strong transparency and consumer protection standards.

Continuous dialogue between regulators and operators is also important to ensure policies remain relevant and effective.

How is your bank leveraging digital tools to scale inclusion without increasing operational costs?

Technology is central to our growth strategy at MicroBiz. We have built systems that allow customers to open accounts digitally, complete verification processes, and access services without visiting a branch. Our USSD platform ensures that even customers without smartphones are included.

We have also developed a flexible core banking system that allows us to design products tailored to local needs. In addition, we use data-driven tools and AI-powered support systems like TESSA to improve service delivery.

The goal is clear: expand reach without increasing physical infrastructure. Technology allows us to scale efficiently while maintaining quality service.

Do you see agent banking and mobile channels overtaking traditional branch-based microfinance?

Yes, over time, they will. Agent networks and mobile platforms are already becoming the primary access points for many customers. However, branches will still play an important role as centres for support and trust.

The future is a hybrid model where digital channels drive access, agents provide reach, and branches offer support.

Given inflation, high interest rates, and low purchasing power, how sustainable is the microfinance model today?

The current economic environment is challenging, but microfinance remains highly relevant. In times of economic pressure, the need for small, flexible financial support increases. Microfinance helps individuals manage cash flow, sustain businesses, and adapt to changing conditions.

Sustainability, however, will depend on smarter lending, strong risk management, cost efficiency, and continuous adaptation to new realities.

What structural reforms are needed to make microfinance banks more impactful in Nigeria’s economy?

Several reforms are required to unlock the full potential of microfinance, including the integration of national identity systems, stronger credit infrastructure, and a reduction in the cost of funds. There is also a need for innovation-friendly regulation, while intervention funds should be channelled through microfinance banks equipped with the right tools and outreach. In addition, public-private partnerships should be strengthened, and the government must play a clear role as an enabler rather than an operator. Together, these measures will reinforce the sector and enhance its capacity to serve underserved populations.

Over the next decade, will microfinance banks continue to be relevant, or will they transform into a completely different model?

Microfinance banks will remain relevant, but they will continue to evolve. The future will be digital, data-driven, and deeply integrated into everyday economic activities such as agriculture, trade, health, and energy.

At MicroBiz, our vision is to become a national financial inclusion platform powered by technology, data, and community networks.

As long as financial exclusion exists, microfinance will have a role to play. The opportunity now is to build a system that is more inclusive, more efficient, and more impactful for all Nigerians.